MP HC Sets Aside Bank of India Fraud Tags Over Inadequate Time To Answer Five-Year Audit, Gives Borrowers 15 Days To Reply

The Bank of India issued show-cause notices dated 1 July 2026 to the appellants concerning alleged diversion and misuse of credit, falsification of accounts and material misrepresentation, and later declared their accounts fraudulent by orders dated 24 August and 10 September 2026.

The appellants sought additional time to respond, contending that the forensic audit covered transactions over five years and that relevant documents had not been supplied; the Bank maintained that opportunities had been granted and no replies filed.

The writ petitions challenging the fraud classifications were dismissed on 6 October 2026. The appellants appealed.

Clause 2.1.1.2 of the RBI Master Circular requires that a person or entity served with a show-cause notice be given “a reasonable time of not less than 21 days” to respond; the clause sets a minimum, not a maximum, period.

The opportunity to respond must be meaningful and reasonable in the circumstances, as required by the principles of natural justice.

Although the Bank had referred to extensions of 21 and 31 days, both were calculated from the date of the show-cause notice, not from the dates of the extensions; the latter extension therefore afforded only about ten additional days.

The audit concerned transactions spanning 2020 to 2025, and the appellants also asserted that relevant documents had not been supplied and that some were held by the GST department.

In those circumstances, the period allowed was not reasonable, and the extensions did not provide a meaningful opportunity to reply. The writ court therefore erred in finding no breach of natural justice.

The writ court’s order and the Bank’s orders declaring the appellants’ accounts fraudulent were set aside. The Court granted the appellants 15 days from pronouncement to file their replies and remanded the matters to the Bank for fresh orders after considering those replies in accordance with law. The Court expressed no view on the merits.